Business owners spend a great deal of time thinking about how to create value for customers and solve their problems. Yet it’s also important to apply this mindset to an internal set of stakeholders — your employees.
As entrepreneurs scale their companies in second stage, employees become increasingly more important. In my opinion, they are the most important asset for many companies. Good employees are rare, and when you get them, you don’t want to lose them.
Exit interviews can be beneficial, but by this time the damage is already done. Turnover not only lowers productivity and morale, but also takes a bite out of your bottom line. According to Gallup, replacing an employee can cost from 40% to 200% of their annual salary.
Start your employee retention initiative by being crystal clear about what talent means for your company. Knowledge, skills and abilities will vary depending on your firm’s product or service and how you compete in the market. Some attributes I often hear from second-stage entrepreneurs is that their best employees are self-directed. They show up and work without prompting. They align with company values. And they display leadership characteristics even though it may not be part of their job title.
Talk to employees, especially your best and brightest, about what attracted them to your company in the first place and why they stay. Even though you may think you already know, nail it down. What is your core competency when it comes to attracting and retaining talent?
Be sure to probe beyond standard incentives like salary and health benefits. In his book “Drive: The Surprising Truth About What Motivates Us,” Daniel Pink points to three key intrinsic carrots:
- Mastery — This includes professional development and leadership training — something that A and B players look for in a job. What learning opportunities are you giving employees that will enable them to improve their skills or tackle higher tasks? In second stage, building your team is not just about adding people to the payroll, but also helping them to advance. I remember hearing of a CFO who asked, “What if we spend all of this money on professional development and then employees leave us?” His CEO’s response: “What if we don’t spend the money, and they all stay?”
- Purpose — An organization’s purpose — why you do what you do — is especially important for knowledge workers. They care deeply about their work. It’s not just about making money. After all, they’re trading a good portion of their lives to work for you, so give them a reason why this matters. At the Edward Lowe Foundation, our mission is to champion the entrepreneurial spirit, which is something that resonated with me when I joined in 2001 and still excites me. I love spending my time helping business owners enhance their leadership skills and grow their businesses.
- Autonomy — This may be the No. 1 attraction for knowledge workers, who like flexibility to choose when and where they work. After all, the muse doesn’t necessarily whisper in one’s ear at 8 a.m. every morning. Thanks to the pandemic, along with evolving technology and attitudes, telecommuting has increased dramatically in recent years. Granted, not every position can accommodate telecommuting. For example, in a bricks-and-mortar retail store someone has to be on-site to open the doors and greet customers. Still, there may be other ways to create degrees of freedom for employees, such as when they take breaks or whom they work with.
When talking to your employees about why they stay, conversations need to be genuine, and leaders should be open to getting feedback. Similar to a business plan, employee retention is an ongoing initiative. Bake this into some sort of system, such as when you set quarterly goals and review progress.
Remember, it’s a competitive battle for employees. Talent is the catalyst that drives companies into the higher realms of second stage.